Euro looks to extend the recovery beyond 1.0530, Dollar remains weak
- The Euro trades on a firm note against the US Dollar.
- Stocks in Europe on their way to close the session with decent gains.
- EUR/USD regains some balance and surpasses 1.0500.
- The USD Index (DXY) looks offered and slips back below 107.00.
- Services PMI in Germany rose above 50 in September.
- The ADP report surprised to the downside.
The Euro (EUR) exhibits a strong buying preference against the US Dollar (USD), motivating EUR/USD to regain upward momentum and surpass the significant 1.0500 level, reaching two-day highs on Wednesday.
On the other hand, the Greenback experiences a decline below the 107.00 level, as indicated by the USD Index (DXY). This occurs amidst a negative performance in US yields across different time-frames and a notable improvement in market sentiment towards risk-associated assets.
A look at the monetary policy front notes that the Federal Reserve (Fed) is expected to raise interest rates by 25 basis points (bps) before the end of the year, according to investors. Simultaneously, market talks about a potential stop in policy changes at the European Central Bank (ECB) continue, despite inflation levels above the bank's objective and mounting fears about a future recession or possibly stagflation in the area.
In the domestic calendar, final Services PMIs in Germany and the euro area came in at 50.3 and 48.7 in September, while Retail Sales in the broader bloc contracted 2.1% in the year to August.
In the US data space, the usual weekly Mortgage Applications by MBA dropped by 6% in the week to September 29, while the ADP Employment Change came in at 89K during last month, nearly half of what was expected. Later in the session, final readings of the Services PMI, Factory Orders, and the always-relevant ISM Services PMI are also due.
Daily digest market movers: Euro regains composure on firm risk appetite
- The EUR remains well bid vs. the USD on Wednesday.
- US and German yields see their upside bias lose momentum.
- Investors predict the Fed to raise interest rates one more time before year-end.
- Markets expect the ECB's tightening campaign to stall.
- BoE’s Andrew Bailey rules out changing the bank’s inflation goal.
- Speculation remains on the rise around FX intervention in USD/JPY.
- The RBNZ kept its interest rate unchanged at 5.5%.
Technical Analysis: Euro seems well supported near 1.0450... for now
EUR/USD attempts a marked comeback so far on Wednesday, advancing past the 1.0500 region following recent YTD lows near 1.0450 (October 3).
On the downside, the loss of the 2023 low of 1.0448 (October 3) should prompt EUR/USD to meet the next support at the round level of 1.0300 prior to minor support at the weekly lows of 1.0290 (November 30 2022) and 1.0222 (November 21 2022).
In case of occasional bullish attempts, the pair should encounter the next up-barrier at 1.0617 (September 29) prior to the weekly high of 1.0767 (September 12), before reaching the crucial 200-day SMA at 1.0825. If the pair breaks beyond this level, it may set up a challenge of the weekly top at 1.0945 (August 30) and the psychological barrier of 1.1000. The surpass of the latter might prompt the pair to test the August peak of 1.1064 (August 10) ahead of the weekly high of 1.1149 (July 27) and the 2023 top of 1.1275. (July 18).
However, it is critical to remember that as long as the EUR/USD remains below the 200-day SMA, the possibility of more negative pressure exists.
Euro FAQs
What is the Euro?
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
What is the ECB and how does it impact the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
How does inflation data impact the value of the Euro?
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
How does economic data influence the value of the Euro?
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
How does the Trade Balance impact the Euro?
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
